Co-ops can decrease inequality

In a sort of rebuttal, Matt Yglesias argues that increasing co-ops would reduce growth and increase inequality, something that he admits might be worth the increase in autonomy. However, his argument for how this increases inequality moves way too fast:

After all, a very hardworking and talented person who’s generating his time and energy to trying to help manage a worker-owned socially conscious cooperative just has no chance of earning nearly as much money as an equally hardworking and talented person who’s actually trying to maximize his income as CEO of a for-profit drug store chain.

In the quote, Yglesias argues that inequality will increase between conventional CEOs and CEOs that move into co-ops. But this is not the kind of inequality we are worried about. Among CEOs, there is already a significant amount of inequality: some make $100,000 while others make $5 million. While it is true that taking any one of those CEOs and putting them into a co-op would probably reduce their income relative to their conventional counterpart, that would not necessarily increase overall social inequality, i.e. the inequality between the poor and the rich.

In fact, as the Mondragon cooperatives in Spain demonstrate, co-ops can actually reduce overall social inequality. They do this by instituting a kind of internal redistribution within their firms. Mondragon co-ops have wage rules that ensure that executive workers can only make a certain amount more than the lowest paid worker (average ratio is 5:1). Relative to their private sector counterparts, Mondragon has effectively instituted intra-firm wage redistribution from workers in high marginal productivity jobs to those in low marginal productivity jobs.

So when done well, a co-op can actually reduce social inequality through a type of internal redistribution. The CEO of a co-op may make less than their private sector counterpart, but the lower level workers can make more.